Cryptocurrencies use cryptography to complete financial transactions directly between two parties without involving any intermediary. These digital assets have become rapidly popular, so countless investors are coming into the marketplace. These financial assets rely on blockchain technology that involves transparency, immutability, and decentralization. The simple linear regression is an efficient way to approach the financial marketplace.
However, it requires a basic understanding of any method or indicator for successful trade executions. This article will introduce you to crypto strategies with chart attachments to better understand. Moreover, we list the top three pros and cons of using this concept.
What is the simple linear regression indicator?
A type of analysis uses two variables to determine a single relationship to identify the market context, such as the current trend or the trend direction. Usually, time and price are two variables that determine the parameters for the simple linear regression system. So no wonder that the concept suits well on many trading assets.
There are three components of the indicator:
- Linear regression line
A line that fits all data points of interest through the calculation of the indicator.
- Linear upper channel line
A line parallel to the linear regression line on the upper side usually defines the resistance level.
- Linear lower channel line
A line parallel to the linear regression line on the bottom side usually defines the support level.
How to trade using the simple linear regression crypto strategy?
Simple linear regression crypto strategy involves using the concept of the linear regression indicator. When the price remains between the linear lower channel line and the linear regression line, it declares a declining pressure on the asset price.
Meanwhile, it indicates the exact opposite or buyer domination on the asset price when the price remains between the linear regression line and the linear upper channel line. The channel usually defines trends according to the upper time frame charts data. You can use this indicator independently to create any crypto trading strategy, or smart crypto investors often use other supportive indicators to execute trades at more reasonable prices.
Short-term trading strategy
We use another familiar technical indicator in this crypto trading method: the moving average convergence/divergence (MACD) alongside the linear regression indicator. MACD shows readings on an independent window containing dynamic signal lines and histogram bars on both sides of a central line. We suggest applying this trading technique on a 15-min or hourly chart to generate the most potent short-term trading ideas, although it works fine on many time frame charts.
Bullish trade scenario
Apply all those indicators at your target asset chart and observe when:
- The price comes near the lower linear channel line and starts rejecting from that level.
- The dynamic blue line reaches above the dynamic red line of the MACD indicator window.
- MACD green histogram bars take place above the central line.
Entry
When these conditions above match your target asset chart, it signals an upcoming bullish pressure on the asset price. Enter a buy order.
Stop loss
The initial stop loss level will be below the current swing low and the linear lower channel line with a buffer of 5-10 pips.
Take profit
Continue your buy order till the price remains between the linear upper channel line and the linear regression line. Close the buy order when:
- The price declines toward the linear regression line after reaching the upper line.
- The dynamic blue line drops below the dynamic red line of the MACD indicator window.
- MACD red histogram bars take place below the central line.
Bearish trade scenario
Apply all those indicators at your target asset chart and observe when:
- The price comes near the upper linear channel line and starts declining from that level.
- The dynamic blue line reaches below the dynamic red line of the MACD indicator window.
- MACD red histogram bars take place below the central line.
Entry
When these conditions above match your target asset chart, it signals an upcoming bearish pressure on the asset price. Enter a buy order.
Stop loss
The initial stop loss level will be above the current swing high and the linear lower channel line with a buffer of 5-10pips.
Take profit
Continue your sell order till the price remains between the linear lower channel line and the linear regression line. Close the sell order when:
- The price starts rising toward the linear regression line after reaching the lower line.
- The dynamic blue line reaches above the dynamic red line of the MACD indicator window.
- MACD green histogram bars take place above the central line.
Long-term trading strategy
We use the RSI and the Parabolic SAR alongside the linear regression indicator in this trading method to determine long-term trading positions. This trading method suits many time frame charts; we recommend using a daily or H4 chart to identify the most potent long-term trading positions through this trading method.
Bullish trade scenario
The price reaches near the linear bottom line, then check when:
- The price starts to rise toward the linear regression line.
- The RSI dynamic line is floating near the central (50) line heading toward the upside.
- Parabolic SAR dots start appearing below price candles.
Entry
These scenarios above declare a potential upcoming bullish momentum. Open a buy position.
Stop loss
Place an initial stop loss below the current bullish momentum.
Take profit
Your buy order is safe till the price remains on the linear regression upper channel. Close the buy order when:
- The price declines from the linear upper line to the linear regression line.
- The parabolic SAR dots switch on the upside of price candles.
- The RSI dynamic line reaches above the upper (70) line or starts to decline after reaching that level.
Bearish trade scenario
The price reaches near the linear upper line, then check when:
- The price starts to decline toward the linear regression line.
- The RSI dynamic line is floating near the central (50) line heading toward the downside.
- Parabolic SAR dots start appearing above price candles.
Entry
These scenarios above declare a potential upcoming bearish momentum. Open a sell position.
Stop loss
Place an initial stop loss above the current bearish momentum.
Take profit
Your sell order is safe till the price remains on the linear regression lower channel. Close the sell order when:
- The price rises from the linear lower line to the linear regression line.
- The parabolic SAR dots switch on the downside of price candles.
- The RSI dynamic line reaches below the lower (30) line or starts to rise after reaching that level.
Pros & cons
| Pros | Cons |
| The indicator is easily applicable. | The linear regression concept is limited to the linear relationship. |
| Its concept has scientific acceptance. | It requires independent data to generate the best output through this concept. |
| The indicator is available on many trading platforms. | The indicator is sensitive to outliers. |
Final thought
We describe one of the best technical trading indicators in this article. You can trade many trading assets using this concept alongside cryptocurrencies. We suggest using good money and trade management as risk management while using the above crypto trading strategies.
